Your November 28 Market View

November 27, 2005

I hope you enjoyed Thanksgiving week. We certainly did here in our portfolio. The winter rally is rolling along and carrying our money with it. We had another excellent week.

At last, The Kelly Letter’s footwear company moved into positive territory for us. We first bought on Oct. 5 at $23 then watched it drop. The investment media, true to form, began fretting over its future and one pundit even called for a $5 stock price as a target to consider for buying. We ignored that wall of worry and bought again on Oct. 28 for $17. The stock closed this week at $21.63, putting our overall position up 8.2% so far.

Meanwhile, recent buys are up 4.6% and 7.2% respectively. All individual positions with the exception of our pharma company are steadily moving higher. That company, which happens to coincidentally be one of our individual positions and this year’s Dow 1 component, is a long-term recovery play and I don’t expect a sudden surge upward anytime soon.

Japan, however is screaming along. Our Japan market investment via is up 16.4% since we bought. Our Japan banking pick is still down 5.4% but the company is performing remarkably well.

On Thanksgiving day in the U.S., the bank posted strong earnings results for the half-year through September due to lower bad-loan write-off costs.

The healthy results are the latest indication that Japan’s banks are on the mend after years of losses writing off mountains of nonperforming loans that piled up during the slowdown that started in the early 1990s.

Since the bank was created Oct. 1 through the merger of two other large banks, earnings results were broken down between the two.

One of the former banks said its group net profit for the six-month period rose 75 percent to 300.7 billion yen ($2.5 billion) from 171.7 billion yen the same period a year earlier. Sales rose 11 percent to 1.4 trillion yen ($12 billion) from 1.26 trillion yen.

The other posted a group net profit of 411 billion yen ($3.5 billion), a sharp recovery from the 674 billion yen net loss it suffered the same period the previous year.

“We had a good start in financial terms,” the bank president told a press conference.

For the fiscal year through March 31, 2006, the bank expects to post a group net profit of 520 billion yen ($4.4 billion), up from the 400 billion yen it had projected earlier.

The bank has total assets of around 190 trillion, or $1.6 trillion, topping Citigroup’s $1.55 trillion, based on the most recent company figures.

Earlier this week, Japan’s other mammoth banks also reported upbeat results. So, everything is looking just grand for our bank and I remain cheery about the stock. Eventually the stock price will catch up to the good news and we’ll enjoy watching the red arrow turn green, just as we’ve done with several other positions so far in the rally.

Let’s not forget our trusty Double The Dow and Maximum Midcap portfolios, the heart of this site’s investment approach. They keep humming along year after year with little maintenance. You just keep sending more money month after month. At last, Double The Dow has pushed into the green for the year and is up 1.2%. Maximum Midcap, per usual, has vastly outperformed its larger-cap sibling and is now up 20.7% so far this year. When you have a chance, take a look at Maximum Midcap’s recent performance on my strategy page. If that’s not a picture of a portfolio you want on your side, I don’t know what is.

On Tuesday, a retail sales group said that the sales outlook looks brighter for this year’s holiday season.

The National Retail Federation, the world’s largest retail trade organization, raised its growth forecast Tuesday for the Christmas season to 6 percent from its September forecast of 5 percent.

“When we had made the forecast, Katrina had just hit,” said Rosalind Wells, economist for the Washington-based trade group. “Everything looked pretty gloomy.” But she said since then, she has seen strong economic indicators.

Wells cited stronger-than-expected retail sales in October and falling gasoline prices as the catalysts for upgrading the holiday forecast.

“We have so much momentum going into the holiday season, so much more than we anticipated,” she noted.

NRF’s move marks the first time that the association has officially upgraded its forecast during the holiday season.

Indeed they appear to be on the right track. After Thanksgiving day’s official sales frenzy and Friday’s enormous turnout, sellers reported great results. Several major retailers, including Wal-Mart, Sears, and Macy’s, as well as mall operator Taubman Centers, estimated they drew bigger crowds for the official holiday season launch compared with last year.

Lena Michaud, spokeswoman at Target Corp., which had a strong holiday season a year ago, said traffic was at least as heavy.

Also on Tuesday, Microsoft’s new Xbox 360 debuted in North America. It will arrive on store shelves Friday, December 2 in Europe, and Saturday, December 10 in Japan. This is the first time that a game console will be launched in three territories in the same time frame. In preparation for what is expected to be massive worldwide demand for the new system, Microsoft announced that Xbox 360 manufacturing is under way, with state-of-the-art facilities producing millions of units ultimately bound for frenzied gamers’ homes from Osaka, Japan, to Oxford, England, and Orlando, Fla.

Yet again on Tuesday, we got a jolt of excitement from the Fed when it released the minutes from its Nov. 1 meeting. They stated that “some members cautioned that risks of going too far with the tightening process could also eventually emerge.” The minutes clearly expressed concern that recent increases in energy prices might lead to broad based inflationary pressures, but they also recognized that core rates of inflation remained low and that long-term inflationary expectations remained contained.

This made traders happy as that means that a series of further rate hikes is no longer guaranteed. It will depend on the data. If the core rates of inflation pick up, the Fed might keep raising rates as expected. But if the economy shows signs of faltering and the fears about high energy prices prove baseless, we may at last see an end to the increases, which would be very good for the stock market.

I’m still looking to get into . It rose a bit this week, but not to a point where we need to fret about missing the opportunity.

Sales and bookings for new microchip-making equipment fell in October from September as chip producers were hesitant to expand capacity during peak months ahead of Christmas, a global survey showed on Wednesday. That helped to keep this target stock’s price down. I think it will do well between now and spring, though, and am looking for a good price to add it to the portfolio. It will round out our tech holdings nicely.

This entry was posted in Uncategorized. Bookmark the permalink. Both comments and trackbacks are currently closed.

The Kelly Letter every Sunday morning by email.
Like no other. Many subscribers say this is the best read of their week, astonishing in its ability to distill seven days of noise into one succinct overview of the very few items that might matter. Start your Sundays right!

A one-page Quick Start Guide
with page number references to full information in The 3% Signal. You'll receive access to this right away so you can begin transforming your portfolio into a performance machine immediately.

The 3Sig Calculator.
A thing of beauty! You'll use it to generate your own personal signals every quarter including exact share amounts to buy and sell based on your account balances. It emails you the results to make later quarters easy by keeping last quarter's numbers at your fingertips. Some subscribers say this tool alone justifies their subscription price.

The subscriber-only section of this website
where likeminded investors are commenting on notes and discussing in forums. Jason joins these interactions every day. They're a treasure trove of investing tips and wisdom.

The archive of Kelly Letter notes.
It’s a research center, searchable and smartly tagged to make gathering time-stamped material on covered subjects easy.

The subscriber podcast.
Jason reads every letter word-for-word. This feature was requested by subscribers who prefer audio learning. They listen on their Monday morning commute, during a workout, or while reading along at their computer.